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Florida Industries Grapple With Inflation and Rising Prices

While experts assure inflation levels are not yet deemed hyperinflation, Florida businesses of all kinds are still feeling the impacts of a 5.4 percent increase in prices from last year. But relief could come by mid-2022.

(TNS) — Two years ago, Mike Cogdill could build a 2,000-square-foot home for under $300,000.

That was before the cost of lumber shot up. And shingles. And appliances. And it was before hiring good workers got harder.

Today, he estimates the cost to build that same house in Tampa Bay, Fla., would be closer to $400,000.

“I’ve had to start putting an escalation clause in my contracts,” said the Tampa home builder. “I’m not looking for markup. It’s just, I have no idea how much inflation we’re going to have. You keep reading stories about hyperinflation coming. Well, we’ve had a good, solid 30 percent (increase in costs) so far this year. I don’t know if hyperinflation is coming. If hyperinflation comes, all bets are off.”

Hyperinflation — a term used to describe periods of sharp, prolonged inflation in the price of goods and services — is one of those economic buzzwords that’s gained traction in 2021, spurred along by everyone from cryptocurrency investors to critics of President Joe Biden’s infrastructure spending. It “will happen in the US soon, and so the world” Twitter cofounder Jack Dorsey tweeted in late October, and it “is going to change everything. It’s happening.”

Not so fast, economists say. While prices in the United States are up 5.4 percent over last year — the highest it’s been since 2008 — that’s a long way from the 50 percent or more that has spurred real hyperinflation this century in nations such as Venezuela and Zimbabwe.

But that’s not to say people won’t feel it.

“Considering where we were last year, when the pandemic started, we’ve made a lot of progress,” said Abbey Omodunbi, an economist with PNC Bank. “But in recent months, we’ve been facing some headwinds from supply chain disruptions. And also the increase in Delta cases. Inflation has been front and center, and folks are feeling it all over at grocery stores and gas pumps.”

In July, the Tampa Bay market had seen year-to-year prices jump by 6.6 percent, according to a SmartAsset analysis of data from the U.S. Bureau of Labor Statistics’ Consumer Price Index — the second-highest rate of inflation in the nation, just a tenth of a point behind Atlanta.

It isn’t just shoppers and small businesses. Some of Tampa Bay’s largest corporations are also citing inflation as a reason for slimmer margins and hedged outlooks. Tampa door maker Masonite has blamed multiple price hikes on the rising cost of raw materials and logistics. Mark Mondello, the CEO of St. Petersburg tech, medical and automotive design and manufacturing company Jabil, said the company was cutting costs and pushing to increase factory productivity to meet demand and keep prices stable.

“We’re trying to do our part in serving our customers in an environment that, at least currently, has inflation embedded in it,” CEO Mark Mondello said on a recent call with investors. “Whether that goes beyond ‘22 or not, I don’t know.”

A handful of factors are contributing to today’s elevated prices, said Alex Horenstein, an associate professor of economics at the University of Miami. And all are tied to the pandemic.

“When COVID hit, companies didn’t know how to react, so they stopped production. So supply went down,” Horenstein said. “But governments gave stimulus (money) and provided a lot of cash to the economy. And at the same time, people stopped spending on traveling and going out and had more disposable income, so demand for goods caught up very fast.”

Manufacturers have scrambled to keep pace. But a recent snarl of the global supply chain, with ships backed up outside ports from coast to coast, has kept inventories limited.

On top of that is a workforce shortage that’s kept some industries light on labor. The reason for this depends on whom you ask: Some businesses blame employees who have chosen to remain unemployed after receiving government aid during the pandemic, while some workers say businesses shouldn’t expect them to leap back into a new working world at the same pay and benefits.

Both arguments have some merit. Many people have saved extra money during the pandemic, Omodunbi said, through reduced expenses and a combination of stimulus or unemployment aid, and may feel more emboldened to hold out for better jobs. Some companies, meanwhile, have promised bonuses and across-the-board wage increases, realizing workers weren’t returning to meet demand.

“This is likely to cause some wage inflation,” he said, “and make these high inflation numbers more persistent into 2022.”

The labor give-and-take is hitting some of Florida’s most prominent industries. Farmers have seen the cost of fuel, labor and fertilizer rise around 20 percent, said Kim Morgan, an associate professor and extension economist with the Southwest Florida Research and Extension Center at the University of Florida.

The trucking industry was facing a dearth of qualified drivers before the pandemic, Morgan said. And the supply of drivers got even worse as more people bought food and other goods online, trucked in from out of state, during the pandemic.

“Because Florida is a peninsula, we are always faced with refrigerated truckers backhauling empty on one leg, which means higher costs in general,” she said.

The leisure and hospitality industry has seen prices rise at hotels and theme parks, even as crowds have not yet returned to pre-pandemic levels. In Tampa Bay, the average hotel room rate rose 33.6 percent from October 2019 to now, according to global hospitality data and analytics firm STR.

“I can tell you there’s a lot of pent-up demand,” said Santiago Corrada, president and CEO of Visit Tampa Bay. “That pent-up demand, who knows if that balances out any kind of inflation. We’ve seen, during economic downturns, travel stay up. Some people say it’s a recession of convenience, because if you go to a theme park, the theme park is still overcrowded.”

Inflation hasn’t slowed Florida’s booming housing and real estate industry, even as costs keep rising. But that has ripple effects, especially in a state where the median household income sits below the national average.

“First-time homebuyers are having issues buying their first homes because prices are just raising to stratospheric heights,” Omodunbi said. That leads more people to rent longer, spending money but no longer building up equity.

So when will the price hikes end?

The prevailing opinion is that the inflation we’re seeing is temporary. Omodunbi sees prices stabilizing “by the middle of 2022, end of 2022,” even in the housing market. Horenstein believes the demand, supply-chain and labor shortage issues will dissipate “by the end of next year if everything goes well.”

But Horenstein recognizes there are risks with predicting when our current state of inflation will end — or even, in some cases, just talking about concerns like hyperinflation, even if that doesn’t come to pass.

“Once inflation moves from temporary to permanent, in people’s mind, what they hear is different,” he said. “You don’t want it to become a bigger problem in people’s expectations, especially in decisionmakers in business.”

For Cogdill, the Tampa home builder, the concerns are hard to avoid. He remembers the last time America’s inflation rate was this high, in the mid-2000s, when low interest rates helped fuel another housing boom that didn’t end well for many families with inadequate resources.

“We’re maxing out what people can afford,” he said. “My concerns are overall inflation and overall interest rates. Those are the only two things that matter. If either one of those gets out of hand, we’re done, and the industry is done for a while. It’ll be 2006-07 all over again.”

©2021 Tampa Bay Times. Distributed by Tribune Content Agency, LLC.

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